Corporate Administration
At December 31, 2008, 16,200 tonnes of copper forward sales contracts remained outstanding at an average price of $2.52 per pound for the period from November 2009 through October 2010. The change in fair value of the forward contracts during the year was a gain of $32,716,000. The fair value of these contracts at December 31, 2008 was an asset of $37,134,000 of which $6,338,000 is included in trade and other receivables for contracts expiring in 2009 and $30,796,000 is included in other assets. Northgate had no forward gold contracts outstanding at December 31, 2008.
In February 2009, Northgate closed out 9,000 tonnes of these copper forward sales contracts for proceeds of $19,182,000. The contracts closed out were equally spread over the maturity dates from November 2009 to October 2010.
Corporate administration costs in 2008 were $11,863,000 compared with $10,461,000 in 2007. This increase is due primarily to administrative expenditures in Australia of $2,302,000. Canadian corporate expenditures declined to $9,561,000 in 2008 resulting from lower compensation expenses in the corporate office reflecting the current economic conditions, as well as reduced corporate development expenditures.
Northgate granted a total of 1,685,000 options to employees in 2008, compared with 1,475,000 granted in 2007. At December 31, 2008, there were 5,758,500 options outstanding, of which 3,080,400 were exercisable. Exploration costs in 2008 were $32,595,000 compared to $29,887,000 in 2007. The increase in exploration costs was partly driven by expenditures of $7,263,000 relating to Northgate’s Australian exploration program. Fosterville and Stawell incurred exploration costs of $3,155,000 and $4,108,000, respectively, as both sites continue to identify additional zones to extend mine life. This increase was offset by a decrease in Canadian exploration expenses of $4,555,000. In Canada, exploration costs of $25,332,000 were incurred primarily at the Young-Davidson property where the underground ramp development was completed in December and the remaining shaft refurbishment continues.
Northgate recognized an income tax expense of $29,750,000 for the year ended December 31, 2008, compared to a recovery of $6,026,000 for the year ended December 31, 2007. Current tax expense of $5,261,000 is down slightly from $6,446,000 in 2007 due to lower taxable income from Northgate’s Canadian operations as a result of lower copper prices. The Australian operations were not cash taxable in 2008. The significant increase in future income tax expense is due to the reversal of a future tax asset of $11,000,000 related to British Columbia mineral taxes, which had been recognized in previous years when the consensus forward price of copper was in excess of $3.00 per pound. The increase also reflects the future tax impact of $12,785,000 relating to Northgate’s copper forward contracts, which are now in a significant asset position.
Cash paid during the period for income taxes was $6,053,000 while no cash taxes were paid in the corresponding year of 2007. Cash income tax payments are related entirely to Northgate’s Canadian operations, which became cash taxable for the first time in 2007 and are expected to remain cash taxable in 2009.